Global Market Quick Take: Europe – 13 June 2024

Key points:

• Equities: New all-time high on lower inflation. Broadcom up 15% on strong outlook
• Currencies: Yen weakens ahead of Friday’s central bank meeting
• Commodities: Crude drops on rising US stocks and downbeat IEA
• Fixed Income: Weaker US CPI offsetting hawkish Fed message
• Economic data: US May PPI

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

In the news: Fed recap: Chair Powell explains why the central bank isn’t ready yet to cut rates (CNBC), EU tariffs on China: Global reaction (Reuters), Broadcom boosts revenue forecast from AI chips, unveils stock split (Reuters), Tesla shareholder meeting: How investors are voting on Musk's $56-bln pay package (Reuters), Inflation slows in May, with consumer prices up 3.3% from a year ago (CNBC), G-7 Leaders to Agree to Tap Frozen Russian Assets, France Says (Bloomberg), Apple to ‘Pay’ OpenAI for ChatGPT Through Distribution, Not Cash (Bloomberg), World faces ‘staggering’ oil glut by end of decade, energy watchdog warns (http://FT)

Equities: US equities surge to new all-time high after first a lower-than-expected US May CPI print and then subsequent hawkish message from the Fed at the FOMC rate decision with the US central bank indicating only one rate cut, but opening the door for two cuts, this year. On US inflation, it was the first negative MoM reading on the “supercore” measure (core services less housing) since September 2021 which is an encouraging sign, but recent reading on the same measure has been stronger than normal, so investors will need a couple of more data points for clarity on inflation. Broadcom shares rose 15% in extended trading following stronger than expected earnings results while issuing a fiscal year guidance on revenue at $51b vs est. $50.6bn driven by demand for AI computing. The CEO said that they expect AI-related revenue to hit $11bn for the current fiscal year. Key earnings focus today is Adobe reporting after the US market close.

Macro:  US May CPI cooled across the board, sending a relief signal to markets. Core CPI M/M rose 0.2% from +0.3% with the Y/Y +3.4% (prev. 3.5%, exp. 3.6%). Headline metrics were also light with M/M at 0.0% (exp. 0.1%, prev. 0.3%) and Y/Y at 3.3% (exp. 3.4%, prev. 3.4%). Supercore inflation turned negative at -0.04% MoM for the first time since September 2021. The Fed’s dot plot took some of the cheer away from the softer inflation print for a second consecutive month, as it shifted hawkish with median dot showing only one rate cut for 2024 from three in March. Looking ahead, the 2025 median dot plot is at 4.1%, up from 3.9% in March (signaling 100bps of rate cuts up from 75bps in March), while the 2026 dot was unchanged at 3.1%, but the longer run rate ticked up again to 2.8% from 2.6%. Chair Powell’s press conference added little new information, preaching data-dependence even as he welcomed the May inflation report and said he would like to see more of that, repeating inflation is still too high and they need more data to gain confidence. B

Macro events (times in GMT):  Eurozone Industrial Production (Apr) exp 0.2% & -2% YoY vs 0.6% & -1% prior (0900), US Initial Jobless Claime exp 225k vs 229k prior (1230), US PPI (May) exp 2.5% YoY and 2.5% YoY ex F&E vs 2.2% & 2.4% prior (1230), EIA’s Weekly Natural gas storage change, exp. 73 bcf vs 98 bcf prior (1430)

Earnings events: Today’s key event is Adobe reporting FY24 Q2 (ending 31 May) earnings after the US market close. Analysts expect 10% YoY revenue growth and EPS of $4.40 up 53% YoY. The past three earnings releases have disappointed investors, so the bar might be set low enough this time for investors not to be disappointed. Focus from investors is naturally on signs of growth picking up from AI-related products.

• Today: Adobe, Halma, Wise

For all macro, earnings, and dividend events check Saxo’s calendar

Fixed income: A roller coaster day across the yield curve with US Treasury yields slumping 15 bps to 4.25% on the lower-than-expected CPI print, before retracing half after the Fed dialled back rate cut expectations from three to just one this year. However, the setback was cushioned by the Fed upping its forecast for 2025 rate cuts to four from three, and recent softness in economic data leaving the market to expect rates may be cut sooner. Meanwhile, yields on Japanese 10-year government bonds decreased to 0.975% ahead of Friday’s BoJ interest rate decision.

Commodities: Gold and silver’s attempted rebound following the US CPI miss was cut short by the FOMC’ higher-for-longer message, with gold returning to trade near USD 2300 once again while silver got rejected above USD 30 with continued focus on incoming data, as well as the demand outlook in China, both for investment and industrial metals such as copper. Crude oil paired some its recent strong gains following an unexpected increase in US stocks and after the IEA lowered its 2024 demand growth outlook below 1 million b/d, some 1.2m b/d below OPEC’s forecast. European gas prices rose following a legal case where Germany's Uniper SE secured €13 billion ($14 billion) in damages from Gazprom PJSC for failing to meet gas delivery obligations

FX: The dollar slumped on the softer US inflation print fuelling risk-on sentiment across markets, but a hawkish shift at the FOMC announcement despite the cooling in inflation prompted a slight recovery with DXY index rising back above the 200-day moving average. EURUSD pushed back above 1.08 but eased from the post-CPI highs of 1.0852, with focus remaining on French election concerns. USDJPY made a round-trip to lows of 155.72 before recovering back above 157 overnight as focus turns to BOJ meeting announcement due tomorrow. AUDUSD also reversed from 0.67 handle with eyes on Australia’s jobs report today, and NZDUSD was back below 0.62. EM FX is under pressure, and both COP and MXN were down 1% yesterday despite dollar weakness, suggesting continued risks of a carry unwind in emerging markets.